Balance of Payments
6
CHAPTER
N
o country in today’s globalized world can be fully insulated from what happens
in the global economy and India is no exception to the rule. As the country is
increasingly integrated into the world, it cannot remain impervious to developments
abroad. The unfolding of the euro zone crisis and uncertainty surrounding the global
economy have impacted the Indian economy causing drop in growth, higher current
account deficit (CAD) and declining capital inflows. As in 2008, the transmission
of the crisis has been mainly through the balance-of-payments (BoP) channel. Export
growth has decelerated in the third quarter of fiscal 2011-12, while imports have
remained high, partly because of continued high international oil prices. At the
same time, foreign institutional investment flows have declined, straining the capital
account and the rupee exchange rate that touched an all-time low of ` 54.23 per
US dollar on 15 December 2011.
6.2 The situation, however, is showing signs of
improvement in 2012. The rupee has appreciated
by 2.6 per cent in January 2012 due to Reserve
Bank of India (RBI) intervention, measures to
augment supply of foreign exchange in the domestic
market, steps to curb speculative activities, and
general improvement in India's economic outlook.
FII inflows have resumed, lending support to the
balance of payments and exchange rate. The global
outlook, however, remains uncertain with the
situation in Greece teetering on the brink and
increasing risk that the contagion will spread to the
Portuguese economy. Such a scenario could have
serious repercussions for the Indian economy.
BALANCE
OF
PAYMENT (BOP)
6.3 As per the Balance of Payment Manual (Fifth
Edition), BoP comprises current account, capital
account, errors and omissions, and change in foreign
exchange reserves. Under current account of the
BoP, transactions are classified into merchandise
(exports and imports) and invisibles. Invisible
http://indiabudget.nic.in
transactions are further classified into three
categories. The first component is Services
comprising travel, transportation, insurance,
government not included elsewhere (GNIE), and
miscellaneous. Miscellaneous services include
communication, construction, financial, software,
news agency, royalties, management, and business
services. The second component of invisibles is
income. Transfers (grants, gifts, remittances, etc.)
which do not have any quid pro quo form the third
category of invisibles.
6.4 Under capital account, capital inflows can be
classified by instrument (debt or equity) and maturity
(short- or long-term). The main components of
capital account include foreign investment, loans,
and banking capital. Foreign investment comprising
foreign direct investment (FDI) and portfolio
investment consisting of foreign institutional
investor (FIIs) investment and American depository
receipts /global depository receipts (ADRs/GDRs)
represents non-debt liabilities. Loans (external
assistance, external commercial borrowings [ECB],
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Economic Survey 2011-12
and trade credit) and banking capital including nonresident Indian (NRI) deposits are debt liabilities.
6.5 The highlights of BoP developments during
2010-11 were higher exports, imports, invisibles,
trade, CAD and capital flows in absolute terms as
compared to fiscal 2009-10. Both exports and
imports showed substantial growth of 37.3 per cent
and 26.8 per cent respectively in 2010-11 over the
previous year. The trade deficit increased by 10.5
per cent in 2010-11 over 2009-10. However, as a
proportion of gross domestic product (GDP), it
improved to 7.8 per cent in 2010-11 (8.7 per cent in
2009-10). Net invisible balances showed
improvement, registering a 5.8 per cent increase in
2010-11. The CAD widened to US$ 45.9 billion in
2010-11 from US$ 38.2 billion in 2009-10, but
improved marginally as a ratio of GDP to 2.7 per
cent in 2010-11 vis-a-vis 2.8 per cent in 2009-10.
Net capital flows at US$ 62.0 billion in 2010-11 were
higher by 20.1 per cent as against US$ 51.6 billion
in 2009-10, mainly due to higher inflows under ECBs,
external assistance, short-term trade credit, NRI
deposits, and bank capital. In 2010-11, the CAD of
US$ 45.9 billion was financed by the capital account
surplus of US$ 62.0 billion and it resulted in accretion
to foreign exchange reserves to the tune of US$ 13.1
billion (US$ 13.4 billion in 2009-10).
Table 6.1: Balance of Payments : Summary
Sl.
No.
Item
1
2
(US$ million)
2006-07
2007-08
2008-09
2009-10
3
4
5
6
2010-11PR
7
2010-11
H1 (AprilSept.
2010)PR
2011-12
H1 (AprilSept.
2011)P
8
9
I
Current Account
1
Exports
128888
166162
189001
182442
250468
107331
150909
2
Imports
190670
257629
308520
300644
381061
176213
236674
3
Trade balance
-61782
-91467
-119519
- 118203
-130593
-68883
-85765
4
Invisibles (net)
52217
75731
91604
80022
84647
39283
52923
a Non-factor services
29469
38853
53916
36016
48816
21517
31060
b Income
-7331
-5068
-7110
-8038
-17309
-8238
-9025
c Transfers
30079
41945
44798
52045
53140
26004
30887
-32313
-52614
-65603
-82187
-81777
-47366
-54705
-9565
-15737
-27914
-38181
-45945
-29599
-32842
45203
106585
7395
51634
61989
38950
41061
1775
2114
2439
2890
4941
3036
705
5
Goods & services balance
6
Current account balance
II
Capital Account
1
Capital account balance
i
External assistance (net)
ii
External commercial
16103
22609
7861
2000
12506
5674
10592
iii Short-term debt
borrowings (net)
6612
15930
-1985
7558
10990
6937
5940
iv Banking capital (net)
1913
11759
-3245
2083
4962
839
19344
4321
179
4290
2922
3238
2163
3937
14753
43326
8342
50362
39652
30836
13657
a FDI (net)
7693
15893
22372
17966
9360
7040
12311
b Portfolio (net)
7060
27433
-14030
32396
30293
23796
1346
of which
Non-resident deposits (net)
v Foreign investment (net)
of which
vi Rupee debt service
-162
-122
-100
-97
-68
-16
-32
vii Other flows (net)
4209
10969
-5916
-13162
-10994
-8356
-9145
III Errors and omissions
968
1316
440
-12
-2993
-2320
-2500
36606
92164
-20080
13441
13050
7030
5719
20080 (-) 13441
(-)13050
(-)7030
(-)5719
IV Overall balance
V
Reserves
[increase (-) / decrease (+)]
Source : RBI.
http://indiabudget.nic.in
(-) 36606 (-) 92164
Notes : PR: Partially Revised. P: Preliminary.
Balance of Payments
6.6 During the first half (H1–April-September 2011)
of 2011-12, CAD in absolute terms was higher than
in the corresponding period of the previous year,
mainly due to higher trade deficit. The net capital
flows in absolute terms were also higher during H1
of 2011-12 vis-a-vis the corresponding period of
2010-11 (Table 6.1).
CURRENT ACCOUNT
Merchandise trade
6.7 During 2010-11, exports crossed the US$ 200
billion mark for the first time, increasing by 37.3 per
cent from US$ 182.4 billion in 2009-10 to US$ 250.5
billion. This increase was largely driven by
engineering goods, petroleum products, gems and
jewellery, and chemicals and related products. The
improvement in exports was accompanied by a
structural shift in the composition of the export basket
from labour-intensive manufacture to higher valueadded engineering and petroleum products. There
was also a diversification of export destinations with
developing countries becoming our largest export
market in recent years.
6.8 Like exports, imports also recorded a 26.8 per
cent increase to US$ 381.1 billion in 2010-11
from US$ 300.6 billion in 2009-10. Oil imports
showed an increase of 19.3 per cent in 2010-11
(as against a decline of 7.0 per cent a year ago)
and accounted for 28.1 per cent of total imports
(30.2 per cent in 2009-10). Growth in imports
has primarily been led by petroleum and related
products and pearls and semi-precious stones.
Detailed analysis is given in the chapter on
international trade.
6.9 The trade deficit increased by 10.5 per cent to
US$ 130.6 billion as compared to US$ 118.2 billion
in 2009-10. This was primarily on account of higher
increase in imports relative to exports on the back
of a robust domestic economic performance in
2010-11. In terms of GDP, however, the trade deficit
improved from 8.7 per cent in 2009-10 to 7.8 per
cent in 2010-11 due to relatively higher increase in
GDP at market prices vis-a-vis trade deficit.
6.10 The widening of India’s CAD during H1 of
2011-12 reflects the impact of growth asymmetry
between India and the rest of the world. India’s export
and import growth momentum, gained in 2010-11,
continued during H1 of 2011-12.
6.11 During H1 of 2011-12, exports increased from
US$ 107.3 billion during H1 of 2010-11 to US$ 150.9
billion, registering a growth of 40.6 per cent as
http://indiabudget.nic.in
133
compared to 30 per cent in H1 of 2010-11 over H1
of 2009-10. Exports in 2011-12 were driven mainly
by buoyancy in items such as engineering goods
and petroleum products. The resilience in export
performance appeared to have resulted from a
supportive government policy, focusing on
diversification in terms of higher value-added
products in the engineering and petroleum sectors
and destinations across developing economies.
Trade policy is supporting exports through schemes
like the Focus Market Scheme (FMS), Focus
Product Scheme (FPS), and Duty Entitlement
Passbook Scheme (DEPB).
6.12 Imports of US$ 236.7 billion recorded an
increase of 34.3 per cent during H1 of 2011-12 as
against an increase of 27.3 per cent in H1 of
2010-11 over H1 of 2009-10. Rising crude oil prices,
along with increase in gold and silver prices, have
contributed significantly to the burgeoning import bill
during H1 of 2011-12.
6.13 The trade deficit widened by 24.5 per cent to
US$ 85.8 billion (9.4 per cent of GDP) during H1 of
2011-12 vis-a-vis US$ 68.9 billion (8.9 per cent of
GDP) in H1 of the previous year, despite the higher
export growth compared with imports in H1 of
2011-12
Invisibles
6.14 The invisibles account of the BoP reflects the
combined effect of transactions relating to
international trade in services, income associated
with non-resident assets and liabilities, labour and
property, and cross-border transfers, mainly workers’
remittances.
6.15 In 2010-11, there was a sharp increase in both
exports and imports of services. Services exports
increased by 38.4 per cent from US$ 96.0 billion in
2009-10 to US$ 132.9 billion in 2010-11. Business
services increased by 113.3 per cent from US$ 11.3
billion in 2009-10 to US$ 24.8 billion in 2010-11 and
financial services by 75.7 per cent to US$ 6.5 billion
in 2010-11 from US$ 3.7 billion in 2009-10. Receipts
on account of software services also witnessed a
rise, mainly on account of improved efficiency and
diversified export destinations. Software receipts at
US$ 55.5 billion, accounting for 41.8 per cent of total
service receipts, showed an increase of 11.7 per cent
in 2010-11 (7.3 per cent a year earlier). Software
receipts were 12.4 per cent of total current receipts.
Net service exports increased to US$ 48.8 billion in
2010-11 from 36.0 billion in 2009-10, registering 35.5
per cent increase.
134
Economic Survey 2011-12
6.16 Private transfer receipts, comprising mainly
remittances from Indians working overseas, also
increased by 3.7 per cent to US$ 55.6 billion in
2010-11 from US$ 53.6 billion in the previous year.
Private transfer receipts constituted 12.4 per cent of
current receipts (15.5 per cent in 2009-10). A modest
increase was observed in other categories of receipts
(transportation, insurance, communication, and
GNIE).
6.17 Invisible payments increased by 36.2 per cent
from US$ 83.4 billion in 2009-10 to US$ 113.6 billion
in 2010-11. The growth of 36.2 per cent in invisible
payments outstripped the 21.3 per cent growth
recorded in 2010-11. Increase in invisible payments
was mainly attributed to business services, financial
services, travel, and investment income. Even though
the surplus on account of service-sector exports was
significantly higher in 2010-11, growth in net receipts
on account of transfers was moderate and net outflow
of investment income increased during the same
period. As a result, the net invisible balance (receipts
minus payments) posted an increase of 5.5 per cent
to US$ 84.6 billion in 2010-11 as against US$ 80.0
billion in 2009-10. As a proportion of GDP, net
invisible balance declined from 5.9 per cent
in 2009-10 to 5.0 per cent in 2010-11. At this level,
the invisible surplus financed 64.8 per cent of trade
deficit as against 67.7 per cent during 2009-10.
6.18 During H1 of 2011-12, invisible receipts
recorded an increase of 17.4 per cent to US$ 106.0
billion vis-a-vis US$ 90.3 billion during the
corresponding period of 2010-11. All broad categories
Table 6.2 : Selected Indicators of the External Sector
Sl.
No.
Item
1
2006-07
2008-09
2009-10
2010-11PR
2010-11
2011-12
H1 (AprilH1 (AprilSept. 2010)PR Sept. 2011)P
3
4
5
6
7
8
9
Growth of exports – BoP (%)
22.6
28.9
13.7
-3.5
37.3
30.0
40.6
2
Growth of imports – BoP (%)
21.4
35.1
19.8
-2.6
26.7
27.3
34.3
3
Growth of non-factor services
28.0
22.4
17.3
-9.4
38.4
32.7
17.1
4
Growth of non-factor services
(debit) (%)
28.5
16.2
1.1
15.3
40.0
48.3
1.0
5
Exports/imports-BoP (%)
67.6
64.5
61.3
60.7
65.7
60.9
63.8
6
Exports/imports of goods and
services (%)
86.2
83.0
81.8
77.2
82.4
77.7
80.0
7
Import cover of FER (No. of months)
12.5
14.4
9.8
11.1
9.6
10.0
7.9
8
External assistance (net)/ TC (%)
3.9
2.0
33.0
5.6
8.0
7.8
1.7
9
ECB (net)/TC (%)
35.6
21.2
106.3
3.9
20.2
14.6
25.8
10 NRI deposits / TC (%)
9.6
0.2
58.0
5.7
5.2
5.6
9.6
11 Exports
13.6
13.4
15.2
13.4
14.8
13.9
16.5
12 Imports
20.1
20.8
25.0
22.0
22.6
22.8
25.8
13 Trade balance
-6.5
-7.4
-9.7
-8.7
-7.8
-8.9
-9.4
5.5
6.1
7.5
5.9
5.0
5.1
5.8
15 Goods and services balance
-3.4
-4.2
-5.3
-6.0
-4.9
-6.1
-6.0
16 Current account balance
-1.0
-1.3
-2.3
-2.8
-2.7
-3.8
-3.6
17 ECBs
1.7
1.8
0.6
0.1
0.7
0.7
1.2
18 FDI (net)
0.8
1.3
1.8
1.3
0.6
0.9
1.3
19 Portfolio investment (net)
0.7
2.2
-1.2
2.4
1.8
3.1
0.1
20 Total capital account (net)
4.7
8.6
0.5
3.8
3.7
5.0
4.5
1
2
2007-08
(credit) (%)
As per cent of GDP mp
14 Invisible balance
PR
P
Source : RBI.
: Partially Revised.
: Preliminary.
Notes: FER: Foreign Exchange Reserves;
TC: Total Capital Flow (net);
GDPmp: Gross Domestic Product at current market prices.
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Balance of Payments
of invisibles, namely services, transfers, and income,
showed increase. Growth in exports of services
moderated to 17.1 per cent during H1 of 2011-12 as
against 32.7 per cent during H1 of 2010-11, while
growth in imports was substantially lower at 1.0 per
cent during H1 of 2011-12 as against 48.3 per cent
during H1 of 2010-11. On net basis, the services
surplus increased to US$ 31.1 billion in H1 of 201112 from US$ 21.5 billion in the corresponding period
a year earlier. Investment income receipts declined
by 3.8 per cent to US$ 4.2 billion during H1 of 201112, while payments amounted to US$ 13.6 billion
(US$ 12.2 billion a year earlier). Transfer receipts
that primarily comprise personal transfers increased
to US$ 32.3 billion during H1 of 2011-12 (US$ 27.2
billion a year earlier).
47.4 billion during the corresponding period a year
earlier on account of increase in trade deficit.
However, as a ratio of GDP, it marginally declined
to 6.0 per cent in 2011-12 (up to H1) from 6.1 per
cent in 2010-11 (up to H1) (Table 6.2).
Current Account Balance
6.21 The CAD increased to US$ 45.9 billion in
2010-11 from US$ 38.2 billion in 2009-10, despite
improvement in net invisibles, mainly on account
of higher trade deficit. However, as a proportion of
GDP, CAD marginally improved to 2.7 per cent in
2010-11 as compared to 2.8 per cent in 2009-10
(Figure 6.1).
6.22 The CAD increased to US$ 32.8 billion in
H1 of 2011-12, as compared to US$ 29.6 billion
during the corresponding period of 2010-11, mainly
on account of higher trade deficit. As a proportion
of GDP, it was marginally lower at 3.6 per cent
during H1 of 2011-12 vis-à-vis 3.8 per cent in H1
of the preceding year (Figure 6.2).
6.19 Invisible payments of US$ 53.0 billion during
H1 of 2011-12 recorded an increase of 3.9 per cent
over US$ 51.0 billion in H1 of 2010-11. Net
invisibles balance (receipts minus payments)
recorded a 34.6 per cent increase to US$ 52.9
billion (5.8 per cent of GDP) in H1 of 2011-12 from
US$ 39.3 billion (5.1 per cent of GDP) in H1 of
the previous year. At this level, the invisibles
surplus financed about 62.0 per cent of trade
deficit during H1 of 2011, as against 57.0 per cent
during the same period a year earlier.
6.23 As per the latest data available from the
Ministry of Commerce, at US$ 242.8 billion during
April 2011-January 2012, exports registered a
growth of 23.5 per cent over exports of US$ 196.6
billion during the same period in 2010-11. At US$
391.5 billion, imports recorded 29.4 per cent
growth during April 2011-January 2012 over the
figure of US$ 302.6 billion during the corresponding
period of the previous year. Consequently, trade
deficit increased by 40.3 per cent to US$ 148.7
billion during April 2011-January 2012 as compared
to US$ 106 billion in April 2010-January 2011.
6.20 Goods and services deficit (i.e. trade
balance plus services) decreased marginally to
US$ 81.8 billion (4.9 per cent of GDP) during 201011 as compared to US$ 82.2 billion (6.0 per cent
of GDP) in 2009-10. In fiscal 2011-12, it widened
to US$ 54.7 billion up to H1 as compared to US$
Figure 6.1
Current account balance, goods and services balance, trade balance,
invisibles balance and net capital inflows as a per cent of GDP during
2006-07 to 2010-11
10
8.6
7.5
8
5.5
As per cent of GDP
6
6.1
5.9
4.7
5.0
3.8
4
2
3.7
0.5
-4
-1.0
-1.3
-3.4
-6
-8
-2.3
-4.2
-6.5
-2.8
-5.3
-2.7
-6.0
-7.4
-10
-9.7
-8.7
Trade
balance
-4.9
-7.8
-12
2006-07
2007-08
2008-09
Year
http://indiabudget.nic.in
Current
account
balance
Goods &
services
balance
0
-2
135
2009-10
2010-11
Invisibles
balance
Net capital
inflows
136
Economic Survey 2011-12
Figure 6.2
Current account balance, goods and services balance, trade balance,
invisibles balance and net capital inflows as a per cent of GDP during H1
of 2010-11 and 2011-12
10
8
5.1
As per cent of GDP
6
5.8
5.0
4.5
4
Current
account
balance
2
Goods &
services
balance
0
-2
-4
-6
-3.6
-3.8
-6.0
-6.1
-8
-10
Trade
balance
-8.9
-9.4
2010-11 H1 (Apr - Sep 2010)
2011-12 H1 (Apr - Sep 2011)
-12
Year
CAPITAL ACCOUNT
6.24 Capital inflows can be classified by instrument
(debt or equity) and maturity (short-term or longterm). The main components of capital account
include foreign investment, loans, and banking
capital. Foreign investment comprising FDI and
portfolio investment represents non-debt liabilities,
while loans (external assistance, ECBs, and trade
credit) and banking capital including NRI deposits
are debt liabilities. In India, FDI is preferred over
portfolio flows as the FDI flows tend to be more
stable than portfolio and other forms of capital flows.
Rupee-denominated debt is preferred over foreign
currency debt and medium- and long-term debt is
preferred over short-term.
6.25 Push and pull factors explain international
capital flows. Push factors are external to an
economy and inter alia include parameters like low
interest rates, abundant liquidity, slow growth, or
lack of investment opportunities in advanced
economies. Pull factors like robust economic
performance and improved investment climate as a
result of economic reforms in emerging economies
are internal to an economy.
6.26 In 2010-11, both gross inflows of US$ 499.4
billion and outflows of US$ 437.4 billion under the
capital account were higher than gross inflows of
US$ 345.8 billion and outflows of US$ 294.1 billion
in the preceding year. In net terms, capital inflows
increased by 20.2 per cent to US$ 62.0 billion (3.7
per cent of GDP) in 2010-11 vis-a-vis US$ 51.6 billion
(3.8 per cent of GDP) in 2009-10 mainly on account
of trade credit and loans (ECBs and banking capital).
http://indiabudget.nic.in
Invisibles
balance
Net capital
inflows
6.27 The Non-debt flows or foreign investment
comprising FDI and portfolio investment (ADRs/GDRs
and FIIs) on net basis decreased by 21.4 per cent
from US$ 50.4 billion in 2009-10 to US$ 39.7 billion
in 2010-11. Decline in foreign investment was offset
by the debt flows component of loans and banking
capital which increased by 130.3 per cent from US$
14.5 billion in 2009-10 to US$ 33.4 billion in 2010-11.
6.28 Inward FDI showed a declining trend while
outward FDI showed an increasing trend in 2010-11
vis-a-vis 2009-10. Inward FDI declined from US$
33.1 billion in 2009-10 to US$ 25.9 billion in 201011. Sector-wise, deceleration during 2010-11 was
mainly on account of lower FDI inflows under
manufacturing, financial services, electricity, and
construction. Country-wise, investment routed
through Mauritius remained the largest component
of FDI inflows to India in 2010-11 followed by
Singapore and the Netherlands. Outward FDI
increased from US$ 15.1 billion in 2009-10 to US$
16.5 billion in 2010-11. With lower inward FDI and
rise in outward FDI, net FDI (inward minus outward)
to India stood considerably lower at US$ 9.4 billion
during 2010-11 (US$ 18.0 billion a year earlier).
6.29 Net portfolio investment flow witnessed
marginal decline to US$ 30.3 billion during 2010-11
as against US$ 32.4 billion in 2009-10. This was
due to decline in ADRs/GDRs to US$ 2.0 billion in
2010-11 from US$ 3.3 billion in 2009-10, even though
FII inflows showed marginal increase to US$ 29.4
billion in 2010-11 from US$ 29.0 billion in 2009-10.
6.30 Other categories of capital flows, namely
debt flows of ECBs, banking capital, and short-
Balance of Payments
term credit recorded a significant increase in 201011. Net ECB inflow increased significantly to US$
12.5 billion in 2010-11 as against US$ 2.0 billion in
2009-10. Similarly, short-term trade credit increased
from US$ 7.6 billion in 2009-10 to US$ 11 billion in
2010-11, indicating strong domestic economic
performance. Further, external assistance increased
from US$ 2.9 billion in 2009-10 to US$ 4.9 billion
in 2010-11.
6.31 The capital account surplus improved by
20.1 per cent to US$ 62.0 billion during 2010-11
from US$ 51.6 billion in 2009-10. However, as a
proportion of GDP, it declined marginally to 3.7
per cent in 2010-11 from 3.8 per cent in 2009-10.
6.32 Net accretion to reserves (on BoP basis) in
2010-11, at US$ 13.1 billion, remained at more or
less the same level as in 2009-10 (US$ 13.4 billion).
6.33 In fiscal 2011-12 (up to H1), under the capital
account both gross inflows of US$ 244.2 billion and
outflows of US$ 203.1 billion were higher than the
gross inflows of US$ 207.5 billion and outflows of
US$ 168.5 billion during the same period a year
ago. In net terms, capital inflows increased
moderately to US$ 41.1 billion in H1 of 2011-12 as
against US$ 39.0 billion in H1 of 2010-11. While net
FDI was higher at US$ 12.3 billion in H1 of 2011-12
as against US$ 7 billion in H1 of 2010-11, net portfolio
investment substantially declined from US$ 23.8
billion to US$ 1.3 billion during the same period.
This was on account of a major decline in FII flows
to US$ 0.9 billion in 2011-12 (up to H1) from US$
22.3 billion in H1 of 2010-11. Other capital flows,
including ECBs and banking capital, also
substantially increased. Net capital inflow as a
proportion of GDP has shown moderation from 5.0
per cent in H1 of 2010-11 to 4.5 per cent in H1 of
2011-12.
6.34 Net accretion to reserves (on BoP basis)
during H1 of 2011-12 was lower at US$ 5.7 billion
as compared to US$ 7 billion in H1 of the previous
year mainly due to widening of the CAD.
6.35 As per the latest available information on
capital inflows, FDI inflows were US$ 35.3 billion
during April-December 2011 (US$ 16.0 billion in the
corresponding period of the preceding year).
Portfolio inflows fell sharply to US$ 3.3 billion
during April-December 2011 from US$ 31.3 billion
a year earlier mainly reflecting uncertainty and risk
in the global economy on account of the euro zone
crisis.
http://indiabudget.nic.in
137
FOREIGN EXCHANGE RESERVES
6.36 India’s foreign exchange reserves comprise
foreign currency assets (FCA), gold, special drawing
rights (SDRs), and reserve tranche position (RTP) in
the International Monetary Fund (IMF). The level of
foreign exchange reserves is largely the outcome of
the RBI’s intervention in the foreign exchange market
to smoothen exchange rate volatility and valuation
changes due to movement of the US dollar against
other major currencies of the world. Foreign
exchange reserves are accumulated when there is
absorption of the excess foreign exchange flows by
the RBI through intervention in the foreign exchange
market, aid receipts, and interest receipts and
funding from the International Bank for
Reconstruction and Development (IBRD), Asian
Development Bank (ADB), International Development
Association (IDA), etc.
6.37 FCAs are maintained in major currencies like
the US dollar, euro, pound sterling, Australian dollar,
and Japanese yen. Both the US dollar and euro are
intervention currencies; however, reserves are
denominated and expressed in the US dollar only,
which is the international numeraire for the purpose.
The movement of the US dollar against other
currencies in which FCAs are held therefore impacts
the level of reserves in US dollar terms. The level of
reserves declines when the US dollar appreciates
against major international currencies and vice versa.
The twin objectives of safety and liquidity have been
the guiding principles of foreign exchange reserves
management in India with return optimization being
embedded strategy within this framework.
India’s foreign exchange reserves
6.38 Beginning from a low level of US$ 5.8 billion
at end March 1991, India’s foreign exchange reserves
gradually increased to US$ 25.2 billion by end March
1995, US$ 38.0 billion by end March 2000, US$ 113.0
billion by end March 2004, and US$ 199.2 billion by
end March 2007. The reserves stood at US$ 314.6
billion at end May 2008, before declining to US$
252.0 billion at the end of March 2009. The decline
in reserves in 2008-09 was inter alia a fallout of the
global crisis and strengthening of the US dollar visà-vis other international currencies. During 2009-10,
the level of foreign exchange reserves increased to
US$ 279.1 billion at end March 2010, mainly on
account of valuation gain as the US dollar
depreciated against most of the major international
currencies. In fiscal 2010-11, foreign exchange
reserves have shown an increasing trend and reached
138
Economic Survey 2011-12
US$ 304.8 billion at end March 2011, up by
US$ 25.7 billion from the US$ 279.1 billion level at
end March 2010. Of the total increase in reserves,
US$ 12.6 billion was on account of valuation gains
arising out of depreciation of the US dollar against
major currencies and the balance US$ 13.1 billion
was on BoP basis. In 2011-12, the reserves increased
by US$ 6.7 billion from US$ 304.8 billion at end March
2011 to US$ 311.5 billion at end September 2011.
Out of this total increase, US$ 5.7 billion was on
BoP basis and the balance US$ 1.0 billion was on
account of valuation effect (Table 6.3). The
component-wise details of foreign exchange reserves
from 1950-51 to 2011-12 (up to December 2011) in
rupee and US dollar are given in Appendices 6.1 (A)
and 6.1 (B).
6.39 In the current fiscal, on month-on-month
basis, the foreign exchange reserves have shown
twin trends. The reserves reached an all time high
level of US$ 322.0 billion at end August 2011.
However, they declined to US$ 311.5 billion at
end September 2011 before increasing to US$
316.2 billion at end October 2011. In the months
of November and December 2011, reserves again
showed a declining trend. At end December 2011,
they stood at US$ 296.7 billion, indicating a
decline of US$ 8.1 billion from US$ 304.8 billion
at end March 2011 (Figure 6.3). The decline in
reserves is partly due to intervention by the RBI
to stem the slide of the rupee against the US
dollar. This level of reserves provides about eight
months of import cover.
Table 6.3 : Sources of Variation in Foreign Exchange Reserves on BoP Basis and Valuation
Effect
(US$ billion)
Sl.
No.
Items
1
2
April-September
2009-10
2010-11PR
2010-11PR
2011-12P
3
4
5
6
-38.2
- 45.9
-29.6
-32.8
I
Current account balance
II
Capital account (net) (a to f)
51.6
62.0
38.9
41.1
a Foreign investment (i+ii)
50.4
39.7
30.8
13.6
(i) FDI
18.0
9.4
7.0
12.3
(ii) Portfolio investment
32.4
30.3
23.8
1.3
29.0
29.4
22.3
0.9
3.3
2.0
1.6
0.5
b ECBs
2.0
12.5
5.7
10.6
c Banking capital
of which:
FIIs
ADRs/GDRs
2.1
5.0
0.8
19.3
of which: NRI deposits
2.9
3.2
2.2
3.9
d Short-term trade credit
7.6
11.0
6.9
5.9
e External assistance
2.9
4.9
3.0
0.7
-13.3
- 11.1
-8.4
-9.2
-0.01
- 3.0
-2.3
-2.5
13.4
13.1
7.0
5.7
-13.4
- 13.1
-7.0
-5.7
13.7
12.6
6.8
1.0
27.1
25.7
13.8
6.7
f
Other items in capital account
(includes Rupee Debt Service)
III
Errors and omissions
IV Overall balance (I+II+III)
V
Reserve change on BoP basis
[increase (-) / decrease (+) ]
VI Valuation change
VII Total reserve change (V+VI)
(increase in reserves (+) /
decrease in reserves (-)
Source : RBI.
PR: Partially Revised.
P: Preliminary.
Note : Total may not tally due to rounding off.
http://indiabudget.nic.in
Balance of Payments
Figure 6.3
139
Foreign exchange reserves
325
US$ billion
320
Foreign
exchange
reserves
315
310
305
300
Dec 2011
Nov 2011
Oct 2011
Sep 2011
Aug 2011
Jul 2011
Jun 2011
May 2011
Apr 2011
Mar 2011
295
Year
for International Settlements (BIS), and top-rated
foreign commercial banks and securities representing
debt of sovereigns and supranational institutions with
residual maturity not exceeding 10 years, to provide
a strong bias towards capital preservation and
liquidity. The annualized rate of return, net of
depreciation, on the multi-currency multi-asset
portfolio of the RBI declined from 4.2 per cent in
2008-09 to 2.1 per cent in 2009-10 and further to 1.7
per cent in 2010-11.
6.40 A summary of changes in the foreign
exchange reserves since 2006-07, with a breakdown
into increase / decrease on BoP basis and valuation
effect is presented in Table 6.4.
FCAs
6.41 FCAs are the major constituent of India’s
foreign exchange reserves. FCAs decreased by US$
11.3 billion from US$ 274.6 billion at end March 2011
to US$ 263.3 billion at end December 2011.
Foreign exchange reserves of other
countries
6.42 In line with the principles of preserving the
long-term value of the reserves in terms of purchasing
power, minimizing risk and volatility in returns, and
maintaining liquidity, the RBI holds FCAs in major
convertible currency instruments. These include
deposits of other country central banks, the Bank
6.43 India continues to be one of the largest holders
of foreign exchange reserves. Country-wise details
of foreign exchange reserves reveal that India is the
sixth largest foreign exchange reserves holder in the
Table 6.4 : Summary of changes in Foreign Exchange Reserves (US$ billion)
Sl.
No.
Year
Foreign exchange
reserves at the
end of financial
year (end March)
Total Increase(+)/
decrease (-) in
reserves
Increase/decrease
in reserves
on a BoP
basis
Increase/decrease
in reserves due
to valuation
effect
1
2
3
4
5
6
1
2006-07
199.2
+ 47.6
2
2007-08
309.7
+ 110.5
3
2008-09
252.0
- 57.7
4
2009-10
279.1
+27.1
5
2010-11
304.8
+25.7
6
2011-12
311.5
+6.7
(up to Sept. 2011)
+36.6
(76.9%)
+92.2
(83.4%)
-20.1
(34.8%)
+13.4
(49.4%)
+13.1
(51.0%)
+ 11.0
(23.1%)
+ 18.3
(16.6%)
- 37.6
(65.2)
+13.7
(50.6%)
+12.6
(49.0%)
+5.7
+1.0
(85.1%)
(14.9%)
Source : RBI.
Note : Figures in parentheses indicate percentage shares of total change.
http://indiabudget.nic.in
140
Economic Survey 2011-12
Table 6.5 : Foreign Exchange Reserves of
some major countries
Sl. Country
No.
Foreign exchange
reserves
(end Dec. 2011)
(US$ billion)
1
2
1
2
China
Japan
3181.1
1326.1
3
4
Russia
Brazil
499.5
352.0
5
6
Switzerland
India
340.6
296.7
7
8
China P R Hong Kong
Germany
285.5
262.3
9 Singapore
10 France
3
237.7
233.6
Source : IMF except for China.
world, after China, Japan, Russia, Brazil, and
Switzerland (Table 6.5) at end December 2011.
6.44 A comparative picture of foreign exchange
reserves and import cover, as measured by the ratio
of foreign exchange reserves to import of goods and
services for select country groups and countries
including India, is presented in Table 6.6. The ratio
of reserves to import of goods and services of
‘Emerging and Developing Economies’ witnessed an
improvement from 75.5 per cent in 2006 to 109.1 per
cent in 2009 before declining to 102.4 per cent in
2010. Among the country groups, the ratio of
‘Developing Asia including China and India’ increased
from 89.5 per cent in 2006 to 145 per cent in 2009,
before declining to 131.2 per cent in 2010. In case of
‘Middle East and North Africa’ the ratio has improved
steadily from 104.3 in 2006 to 118.9 in 2010.
EXCHANGE RATE
6.45 The exchange rate policy is guided by the
broad principle of careful monitoring and management
of exchange rates with flexibility, while allowing the
underlying demand and supply conditions to
determine exchange rate movements over a period
in an orderly manner. Subject to this predominant
objective, RBI intervention in the foreign exchange
market is guided by the objectives of reducing excess
volatility, preventing the emergence of destabilizing
speculative activities, maintaining adequate level of
reserves, and developing an orderly foreign exchange
market.
http://indiabudget.nic.in
6.46 During 2010-11, the average monthly
exchange rate of the rupee against the US dollar
appreciated by 1.2 per cent from ` 45.50 per US
dollar in March 2010 to ` 44.97 per US dollar in
March 2011. Similarly, on point-to-point basis, the
average exchange rate of the rupee [average of buying
and selling rate of the Foreign Exchange Dealers
Association of India (FEDAI)] appreciated by 1.1 per
cent from ` 45.14 per US dollar on 31 March 2010 to
` 44.65 per US dollar on 31 March 2011. This was
mainly on account of weakening of the US dollar in
the international market in 2010-11.
6.47 The monthly average exchange rate of the
rupee vis-a-vis the pound sterling, euro, and Japanese
yen, however, depreciated in 2010-11. The monthly
average exchange rate of the rupee vis-a-vis the pound
sterling depreciated by 5.9 per cent from ` 68.44
per pound sterling in March 2010 to ` 72.71 in March
2011. Similarly, against the euro and Japanese yen,
the monthly average exchange rate of the rupee
depreciated by 1.9 per cent from ` 61.77 per euro in
March 2010 to ` 62.97 per euro in March 2011 and
by 8.7 per cent from ` 50.18 per 100 Japanese yen
in March 2010 to ` 54.98 per 100 Japanese yen in
March 2011.
6.48 On an annual average basis, the rupee
appreciated against major international currencies
except the Japanese yen in fiscal 2010-11. The
annual average exchange rate of the rupee was
` 47.44 per US dollar in 2009-10, appreciating by
4.1 per cent to ` 45.56 per US dollar in 2010-11.
Similarly, the annual average exchange rate of the
rupee in 2009-10 was ` 75.76 per pound sterling
and ` 67.03 per euro, which appreciated by 6.9 per
cent and 11.3 per cent to ` 70.87 per pound sterling
and ` 60.21 per euro respectively during 2010-11.
The annual average exchange rate of the rupee per
Japanese yen however depreciated by 4.1 per cent
from ` 51.11 per 100 Japanese yen in 2009-10 to
` 53.27 per 100 Japanese yen in 2010-11.
6.49 In the current fiscal, there are two distinct
phases in the exchange rate of the rupee. The rupee
continued exhibiting a two-way movement with an
appreciating trend till about July 2011, after which
the trend reversed and it started declining sharply
from September 2011 onwards, due to factors relating
to the uncertain global economy.
6.50 On month-to-month basis the rupee
depreciated by 14.6 per cent from the level of ` 44.97
per US dollar in March 2011 to ` 52.68 per US dollar
in December 2011. On point-to-point basis, it
depreciated by 16.2 per cent from ` 44.65 per US
Balance of Payments
141
Table 6.6 : International Comparison of Foreign Exchange Reserves (US$ billion) and Ratio
of Reserves to Imports of Goods and Services
Sl.
No.
Country / Country
Group
1
2
I
Country
1
Russia
2
3
China
India
4
Brazil
5
Mexico
2006
2007
2008
2009
2010
2011
(Projection)
2012
(Projection)
3
4
5
6
7
8
9
296.2
467.6
412.7
417.8
454.5
527.4
582.5
(141.7)
(165.5)
(112.3)
(164.8)
(141.6)
(129.4)
(130.2)
1069.5
1531.3
1950.3
2417.9
2889.6
3479.5
4112.7
(125.4)
(148.0)
(158.2)
(217.2)
(190.0)
(188.4)
(195.4)
171.3
267.6
248.0
266.2
291.5
319.7
354.9
(75.5)
(95.1)
(71.3)
(73.8)
(66.4)
(62.1)
(60.3)
85.2
179.5
192.9
237.4
287.5
366.1
412.9
(70.7)
(113.8)
(87.6)
(135.9)
(117.7)
(120.3)
(128.0)
76.3
87.1
95.1
99.6
120.3
140.3
150.3
(27.4)
(28.5)
(28.5)
(38.7)
(36.8)
(35.9)
(37.1)
II
Country Group
1
Developing Asia
248.7
330.0
335.8
393.9
488.0
581.3
658.2
(excluding China
(42.6)
(49.1)
(41.7)
(60.6)
(58.3)
(58.2)
(60.6)
& India)
Source : World Economic Outlook Database, September 2011.
Note : 1. Reserves are based on official holding of gold valued at SDR 35 an ounce. This convention results in
a marked underestimation of reserves for countries that have substantial gold holdings.
2. Figures in parentheses indicate ratios of reserves to imports of goods and services.
dollar on 31 March 2011 to ` 53.26 per US dollar on
30 December 2011. The rupee reached a peak of
` 43.94 per US dollar on 27 July 2011, and a low of
` 54.23 per US dollar on 15 December 2011
indicating depreciation of 19.0 per cent. Similarly,
the monthly average exchange rate of the rupee
depreciated by 11.5 per cent against the pound
sterling, 9.1 per cent against the euro, and 18.7 per
cent against the Japanese yen between March 2011
and December 2011.
6.51 A sharp fall in rupee value may be explained
by the supply-demand imbalance in the domestic
foreign exchange market on account of slowdown in
FII inflows, strengthening of the US dollar in the
international market due to the safe haven status of
the US treasury, and heightened risk aversion and
deleveraging due to the euro area crisis that impacted
financial markets across emerging market
economies (EMEs). Apart from the global factors,
there were several domestic factors that have added
to the weakening trend of the rupee, which include
increasing CAD and high inflation.
http://indiabudget.nic.in
6.52 As the rupee has been under pressure since
July 2011, efforts have been made by the RBI to
augment supply of foreign exchange and curb
speculation in the foreign exchange market to stem
rupee decline. These measures are discussed in
detail in Box 6.1.
6.53 As a result of these measures, and increase
in capital inflows, the depreciating trend in rupee
exchange rate reversed. The monthly average
exchange rate of the rupee appreciated by 2.6 per
cent from ` 52.68 per US dollar in December 2011
to ` 51.34 per US dollar in January 2012. On pointto-point basis, the average exchange rate of the
rupee has appreciated by 9.2 per cent from its lowest
value of ` 54.23 per US dollar on 15 December 2011
to ` 49.67 per US dollar on 31 January 2012.
6.54 The month-wise exchange rate of the rupee
against major international currencies and the RBI’s
sale/purchase of foreign currency in the foreign
exchange market during 2011-12 are indicated in
Table 6.7.
142
Economic Survey 2011-12
Box 6.1 : Recent Policy Initiatives to Stem Slide in Rupee Exchange Rate
A number of steps have been taken recently to stimulate capital inflows and curb speculation in foreign exchange market to
stabilize the value of the rupee. Key details are as follows:
I
Measures to increase supply of foreign exchange
Trade Credit
 All-in-cost ceiling for trade credit has been increased from 6 months Libor + 200 basis points (bps) to 6 months Libor
+ 350 bps.
ECBs
 The existing ECB limit under automatic approval route has been enhanced from US$ 500 million to US$ 750 million
for eligible corporates. For borrowers in the services sector, the limit was enhanced from US$ 100 million to US$ 200
million.
 All-in-cost ceiling for ECB was revised as under:
Average maturity period
All-in-cost over 6 months LIBOR*
Existing
Revised
3 years and up to 5 years
300 bps
350 bps
More than 5 years
500 bps
500 bps
* for the respective currency of credit or applicable benchmark
 The change in the all-in-cost ceiling came into force with effect from 23 November 2011 and is applicable up to
31 March 2012, subject to review thereafter.
 The proceeds of ECBs raised abroad for rupee expenditure in India should be brought immediately. In other words,
ECB proceeds meant only for foreign currency expenditure can be retained abroad pending utilization. The rupee
funds however will not be permitted to be used for investment in capital marketsor real estate or for inter-corporate
lending.
FII Investment
 The FII limit for investment in government securities and corporate bonds has been increased by US$ 5 billion each to
US$ 15 billion and US $ 20 billion respectively, from earlier limits of US$ 10 billion and US$ 15 billion. The investment
limit in long-term infrastructure corporate bonds, however, has been kept unchanged at US$ 25 billion. With this,
overall limit for FII investment in corporate bonds and government securities now stands at US$ 60 billion.
NRI Deposits
 With effect from close of business on 23 November 2011, interest rates on fresh non-resident (external) rupee (NRE)
term deposits for one to three years maturity increased to Libor/SWAP + 275 bps. The interest rates will also be
applicable to deposits with maturity period exceeding three years and to deposits renewed after their present maturity
period. Interest rate on Foreign Currency Non Resident Bank Deposit [FCNR (B)] deposits of all maturities contracted
effective from the close of business in India as on 23 November 2011, will be within the ceiling rate of Libor/SWAP
rates plus 125 bps for the respective currency/corresponding maturities.
II
Major administrative measures as per RBI Press Release dated 15 December 2011.
i. Forward contracts involving the rupee as one of the currencies, booked by residents irrespective of the type and tenor
of the underlying exposure, once cancelled, cannot be rebooked.
ii. All cash/tom/spot transactions by authorized dealers on behalf of clients will be undertaken for actual remittances/
delivery only and cannot be cancelled / cash settled.
iii. Forward contracts booked by FIIs, once cancelled, cannot be rebooked. They may, however, be rolled over on or before
maturity.
iv. The Board of Directors of Authorized Dealers was allowed to fix suitable limits for various treasury functions with net
overnight open exchange position and aggregate gap limits required to be approved by the RBI.
a. Net overnight open position limit (NOOPL) of authorized dealers would be reduced across the board and revised
limits in respect of individual banks are being advised to the authorized dealers separately.
b. Intra-day open position / daylight limit of authorized eealers should not exceed existing NOOPL approved by the
RBI.
Source : RBI
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Balance of Payments
143
Table 6.7 : Exchange Rates of Rupee per Foreign Currency and RBI’s Sale/Purchase of
US Dollar in the Exchange Market during 2010-11 and 2011-12
Average exchange rates ( ` per foreign currency)*
Month
US dollar
Pound
sterling
Euro
Japanese
yen**
RBI Net sale (-) /
purchase (+)
(US$ million)
2
3
4
5
6
45.56
(4.1)
44.97
(1.0)
70.87
(6.9)
72.71
(0.8)
60.21
(11.3)
62.97
(-1.4)
53.27
(-4.1)
54.98
(0.1)
(+)1690
44.37
(1.4)
44.90
(-1.2)
44.83
(0.2)
44.42
(0.9)
45.25
(-1.8)
47.63
(-5.0)
49.26
(-3.3)
50.86
(- 3.1)
52.68
(- 3.5)
72.72
(-0.02)
73.41
(-0.9)
72.79
(0.9)
71.65
(1.6)
74.11
(-3.3)
75.12
(-1.3)
77.49
(-3.1)
80.25
(- 3.4)
82.13
(- 2.3)
64.25
(-2.0)
64.48
(-0.4)
64.52
(-0.1)
63.46
(1.7)
64.94
(-2.3)
65.47
(-0.8)
67.45
(-2.9)
68.91
(- 2.1)
69.29
(- 0.6)
53.31
(3.1)
55.32
(-3.6)
55.65
(-0.6)
55.91
(-0.5)
58.68
(-4.7)
62.03
(-5.4)
64.11
(-3.2)
65.60
(- 2.3)
67.63
(- 3.0)
1
2010-11
(annual average)
March-2011
2011-12
(monthly average)
April-2011
May-2011
June-2011
July-2011
August-2011
September-2011
October-2011
November-2011
December-2011
(-) 845.0
(-) 943.0
(-) 2,918.0
(-)7809.0
Source : RBI.
Notes : * FEDAI indicative rate; ** Per 100 yen; Figures in parentheses indicate percentage appreciation (+) and
depreciation (-) over the previous month / year. Some percentage figures may not tally due to rounding off.
6.55 The monthly average exchange rate of the
rupee per US dollar and its appreciation /
depreciation during 2011-12 are depicted in Figure
6.4 .
6.56 Currency depreciation during 2011-12 was not
specific to India. The currencies of other emerging
Monthly average exchange rate (`/US dollar) during March 2011 to December
2011 and appreciation/depreciation over the previous month
56
2
54
52
1
0
-1
50
48
-2
-3
46
44
-4
-5
42
40
2011
http://indiabudget.nic.in
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
-6
Appreciation(+)/
Depreciation(-)
` / US dollar
Figure 6.4
Exchange Rate of Other Emerging
Economies
Monthly
average
exchange rate
(`/US Dollar)
- LHS
Appreciation
(+) /
Depreciation
(-)
- RHS
144
Economic Survey 2011-12
economies, such as the Brazilian real, Mexican
peso, Russian rouble, South Korean won, and South
African rand, also depreciated against the US dollar,
reflecting the increased demand for the US dollar as
a safe haven asset in the wake of the sovereign debt
crisis in the euro zone. Between July and November
2011, the Brazilian real has depreciated by 11.9 per
cent, Russian rouble by 9.3 per cent, South Korean
won by 6.2 per cent, and South African rand by 17.63
per cent.
cross-currency exchange rates as well as inflation
differentials between India and its major trading
partners. The RBI has been constructing six-currency
(US dollar, euro for euro zone, pound sterling,
Japanese yen, Chinese renminbi, and Hong Kong
dollar) and 36-currency NEER and REER indices.
Nominal Effective Exchange Rate (NEER) and
Real Effective Exchange Rate (REER)
6.58 The six-currency trade-based NEER (base:
2004-05=100) depreciated by 2.1 per cent between
March 2010 and March 2011 and by 13.5 per cent
between March 2011 and December 2011. As
compared to this, the monthly average exchange
rate of the rupee appreciated by 1.2 per cent between
March 2010 and March 2011, while in the current
fiscal it depreciated by 14.6 per cent against the US
dollar from ` 44.97 per US dollar in March 2011 to
` 52.68 per US dollar in December 2011 (Table 6. 8
and Appendix 6.6).
The NEER and REER indices are used as indicators
of external competitiveness of the country over a
period of time. NEER is the weighted average of
bilateral nominal exchange rates of the home
currency in terms of foreign currencies, while REER
is defined as a weighted average of nominal exchange
rates, adjusted for home and foreign country relative
price differentials. REER captures movements in
6.59 The six-currency trade-based REER (base:
2004-5=100) of the rupee appreciated by 4.1 per cent
between March 2010 and March 2011. During 201112 (up to December 2011), the six-currency index
showed depreciation of 10.8 per cent over March
2011 largely reflecting depreciation of the rupee in
nominal terms, which mainly happened during the
period August-December 2011.
6.57 The exchange rates of the rupee vis-à-vis
select international currencies since 1991-92, yearwise, and during 2011-12, month-wise, are given in
Appendix 6.5.
Table 6.8 : Indices of NEER and REER of the Indian Rupee (Six-Currency Trade- based Weights)
Base 2004-05 (April-March) = 100
Month averages
NEER
1
2
Appreciation (+)/
depreciation (-)
NEER over
Previous
Period/Month
3
REER
4
Appreciation (+)/
depreciation (-)
REER over privious
Period/Month
5
March 2010
92.19
111.43
March 2011
90.29
-2.1
115.97
4.1
April 2011
90.43
0.2
117.43
1.3
May 2011
89.33
-1.2
116.46
- 0.8
June 2011 (P)
89.32
0
116.13
- 0.3
July 2011 (P)
90.34
1.1
117.72
1.4
August 2011 (P)
88.13
-2.4
115.68
- 1.7
September 2011 (P)
85.08
- 3.5
112. 46
- 2.8
October 2011 (P)
82.35
- 3.2
108.92
- 3.1
November 2011 (P)
80.00
-2.9
105.92
- 2.8
December 2011(P)
78.06
- 2.4
103.46
- 2.3
2011-12
Source : RBI.
P: Provisional
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145
Balance of Payments
Table 6.9 : Exchange Rate of US dollar against International Currencies
Month/Year
GBP/USD
1
Euro/USD
USD/JPY
AUD/USD
2
3
4
5
March 2010
1.5082
1.3543
90.885
0.9095
March 2011
1.60315
1.4162
83.21
1.0336
-5.9
- 4.4
- 8.4
- 12.0
April 2011
1.6707
1.4806
81.11
1.0964
May 2011
1.6445
1.4392
81.545
1.0672
June 2011
1.6047
1.4503
80.535
1.0721
July 2011
1.6418
1.4384
76.895
1.0990
August 2011
1.6246
1.4374
76.61
1.0692
September 2011
1.5589
1.3391
77.14
0.9668
October 2011
1.6087
1.3858
78.185
1.0536
November 2011
1.5712
1.3448
77.55
1.0275
December 2011
1.5537
1.2942
76.95
1.0221
3.2
9.4
- 7.5
1.1
US$ Appreciation (+) / Depreciation (-)
(End March 2010– End March 2011)
2011-12
US$ Appreciation (+) / Depreciation (-)
(End March 2011– End December 2011)
Source : RBI.
US dollar exchange rate in international
market
6.60 In so far as international currencies are
concerned, during 2010-11 the US dollar depreciated
by 5.9 per cent against the pound sterling, 4.4 per
cent against the euro, 8.4 per cent against the
Japanese yen, and 12.0 per cent against the
Australian dollar. In the current fiscal (up to end
December 2011), the US dollar appreciated by 3.2
per cent against the pound sterling, 9.4 per cent
against the euro, and 1.1 per cent against the
Australian dollar. However, it depreciated by 7.5 per
cent against the Japanese yen (Table 6. 9).
billion from US$ 52.3 billion at end March 2010.
Appendices 8.4(A) and 8.4(B) present the
disaggregated data on India’s external debt
outstanding for the period from March 2001 to
September 2011 in Indian rupee and US dollar terms
respectively.
EXTERNAL DEBT
6.62 India’s external debt stock increased by US$
20.2 billion (6.6 per cent) to US$ 326.6 billion at end
September 2011 over end March 2011 estimates of
US$ 306.4 billion. This increase was primarily on
account of higher commercial borrowings and shortterm debt, which together contributed over 80 per
cent of the total increase in external debt. The rise
in short-term trade credits is in line with the increase
in imports associated with reasonably strong
domestic economic activity.
6.61 At end March 2011, India’s external debt stock
was US$ 306.4 billion (` 13,68,477 crore) recording
an increase of US$ 45.4 billion (17.4 per cent) over
the end March 2010 level of US$ 261.0 billion
(` 11,78,994 crore). Component-wise, long-term debt
increased by 15.7 per cent to US$ 241.4 billion at
end March 2011 from US$ 208.7 billion at end March
2010 while short-term debt based on original maturity,
showed an increase of 24.2 per cent to US$ 65.0
6.63 The maturity profile of India’s external debt
indicates the dominance of long-term borrowings.
Long-term external debt at US$ 255.1 billion at end
September 2011, accounted for 78.1 per cent of total
external debt. Long-term debt at end September 2011
increased by US$ 13.6 billion (5.6 per cent) over the
end March 2011 level, while short-term debt (original
maturity) registered an increase of US$ 6.5 billion
(10.1 per cent) (Table 6.10.).
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146
Economic Survey 2011-12
Table 6.10 : India’s External Debt Stock
At end-March
In ` crore
In US$ million
Long-term
Short-term
Total
Long-term
Short-term
Total
2
3
4
5
6
7
2005
116279
17723
134002
508777
77528
586305
2006
119575
19539
139114
533367
87155
620522
2007
144230
28130
172360
628771
122631
751402
2008
178669
45738
224407
714409
182881
897290
2009
181185
43313
224498
921469
220656
1142125
2010
208685
52329
261014
942806
236188
1178994
2011PR
241448
64990
306438
1078330
290147
1368477
1
2011 (end-June)
PR
249010
68474
317484
1116205
306248
1422453
2011 (end-Sept.)
QE
255071
71530
326601
1247863
349889
1597752
Source : Ministry of Finance and RBI
Note : PR : Partially Revised
QE : Quick Estimates.
6.64 Under long-term debt, components such as
commercial borrowings, NRI deposits, and
multilateral borrowings taken together accounted for
61.3 per cent of total external debt at the end of
September 2011 while other long-term debt
components (bilateral borrowings, export credit,
IMF, and rupee debt) accounted for 16.8 per cent.
Thus long-term debt, taking into account all the
components, accounted for 78.1 per cent of total
external debt, while the remaining (21.9 per cent)
was short-term debt at end September 2011 (Table
6.11.).
6.65 The currency composition of India’s total
external debt shows that the share of US dollar
denominated debt was the highest in external debt
stock at 55.8 per cent at end September 2011,
followed by Indian rupee (18.2 per cent), Japanese
yen (12.1 per cent), SDR (9.1 per cent), and euro
(3.5 per cent). The currency composition of
government (sovereign) debt indicates predominance
of SDR denominated debt (37.3 per cent), which is
attributable to borrowing from the IDA, i.e. the soft
loan window of the World Bank under the multilateral
agencies, and SDR allocations by the IMF. The share
Table 6.11 : Composition of External Debt
(per cent of total external debt)
March
2010 PR
March
2011 PR
June
2011 PR
September
2011 QE
3
4
5
6
16.4
15.8
15.6
15.0
2 Bilateral
8.7
8.4
8.3
8.4
3 IMF
2.3
2.1
2.0
2.0
4 Export credit
6.5
6.1
5.9
6.0
Sl.
No.
1
Component
2
1 Multilateral
5 Commercial borrowings
27.1
29.0
29.5
30.3
6 NRI deposits
18.3
16.9
16.6
16.0
7 Rupee debt
8 Long-term debt (1 to 7)
9 Short-term debt
10 Total external debt (8+9)
Source : Ministry of Finance and RBI.
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0.6
0.5
0.5
0.4
79.9
78.8
78.4
78.1
20.1
21.2
21.6
21.9
100.0
100.0
100.0
100.0
PR : Partially Revised.
QE : Quick Estimates.
Balance of Payments
147
Table 6.12 : Currency Composition of India’s External Debt and Sovereign External Debt
Total external debt
Sl. Currency
No.
Sovereign external debt
March
2010
March
2011PR
June
2011PR
Sept.
2011QE
March
2010
March
2011PR
June
2011PR
Sept.
2011QE
3
4
5
6
7
8
9
10
US dollar
53.2
53.6
54.3
55.8
26.5
26.8
26.7
26.5
2
SDR
10.7
9.7
9.5
9.1
41.7
38.1
38.2
37.3
3
Indian rupee
18.7
19.5
19.1
18.2
8.9
12.4
12.2
12.5
4
Japanese yen
11.5
11.4
11.1
12.1
18.6
18.8
18.9
19.9
5
Euro
3.6
3.7
3.7
3.5
4.3
3.9
3.9
3.8
6
Pound sterling
1.8
1.7
1.7
0.8
0.0
0.0
0.0
0.0
7
Others
0.5
0.5
0.6
0.5
0.0
0.0
0.0
0.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1
1
2
Total
Source : Ministry of Finance and RBI.
Note : PR : Partially Revised
QE-Quick Estimates.
of US dollar-denominated debt was 26.5 per cent
followed by Japanese yen denominated (19.9 per
cent) (Table 6.12.).
6.66 Under India’s external debt, government
(sovereign) external debt stood at US$ 79.3 billion,
while non-government debt amounted to US$ 247.3
billion at end September 2011. The share of
government external debt in total external debt
declined from 25.5 per cent at end March 2011 to
24.3 per cent at end September 2011. The ratio of
government debt to GDP also posted a decline and
remained in the range of 4.6 to 5.1 per cent over the
past three years.
6.67 Over the years, India’s external debt stock
has witnessed structural change in terms of
composition. The share of concessional in total debt
has declined due to the shrinking share of official
creditors and government debt and the surge in nonconcessional private debt. The proportion of
concessional in total debt declined from 42.9 per
cent (average) during the period 1991-2000 to 28.1
per cent in 2001-10 and further to 14.7 per cent at
end September 2011. The rising share of nongovernment debt is evident from the fact that such
debt accounted for 65.6 per cent of total debt during
the 2000s vis-a`-vis 45.3 per cent in the 1990s. Nongovernment debt accounted for over 70 per cent of
total debt in the last five years and stood at 75.7 per
cent at end September 2011.
6.68 The share of ECBs in India’s total external
debt has increased substantially over the past few
years. While between end March 2001 and end
March 2006, the share of ECBs in total external debt
http://indiabudget.nic.in
declined from 24.1 per cent to 19.0 per cent, the
compound annual growth in such borrowings was
1.7 per cent. However, between end March 2006 and
end March 2011, ECBs have registered a compound
annual growth rate of 27.4 per cent with the share in
total external debt climbing up to 30.3 per cent at
end September 2011. The increase in ECBs in the
recent period caused some concern given the
depreciation of the rupee as it would mean a higher
debt service burden in rupee terms that could impact
profitability and the balance sheets of corporate
borrowers.
6.69 The key external debt indicators are presented
in Table 6.13. India’s foreign exchange reserves
provided a cover of 95.4 per cent to the total external
debt stock at end September 2011 vis-à-vis 99.5 per
cent at end March 2011. The ratio of short-term
external debt to foreign exchange reserves was at
22.9 per cent at end September 2011 as compared
to 21.3 per cent at end March 2011. The ratio of
concessional debt to total external debt declined
steadily and worked out to 14.7 per cent at end
September 2011 as against 15.5 per cent at end
March 2011.
6.70 India’s external debt has remained within
manageable limits as indicated by the external debt
to GDP ratio of 17.8 per cent and debt service ratio
of 4.2 per cent in 2010-11. This has been possible
due to an external debt management policy of the
government that emphasizes monitoring long- and
short-term debt, raising sovereign loans on
concessional terms with long maturities, regulating
ECBs through end-use and all-in-cost restrictions,
and rationalizing interest rates on NRI deposits.
148
Economic Survey 2011-12
Table 6.13 : India’s Key External Debt Indicators (per cent)
Year
External
Debt
(US$
billion)
Total
External
Debt to
GDP
DebtService
Ratio
Foreign
Exchange
Reserves
to Total
External
Debt
Concessional
Debt to
Total
External
Debt
Short-term
External
Debt* to
Foreign
Exchnage
Reserves
Short-term
External
Debt* to
Total
Debt
2
3
4
5
6
7
8
1990-91
83.8
28.7
35.3
7.0
45.9
146.5
10.2
1995-96
93.7
26.9
26.2
23.1
44.7
23.2
5.4
2000-01
101.3
22.5
16.6
41.7
35.4
8.6
3.6
2005-06
139.1
16.8
10.1#
109.0
28.4
12.9
14.1
2006-07
172.4
17.5
4.7
115.6
23.0
14.1
16.4
2007-08
224.4
18.0
4.8
138.0
19.7
14.8
20.4
2008-09
224.5
20.3
4.4
112.1
18.7
17.2
19.2
2009-10
261.0
18.3
5.5
106.9
16.8
18.8
20.0
2010-11PR
306.4
17.8
4.2
99.5
15.5
21.3
21.2**
End-June 2011 PR
317.5
-
4.6
99.6
15.1
21.7
21.6
End-Sept. 2011 QE
326.6
-
-
95.4
14.7
22.9
21.9
1
Source : Ministry of Finance and RBI.
Notes: - Not worked out for the broken period.
PR : Partially Revised
QE-Quick Estimates.
*: Short-term debt is based on original maturity.
**: Based on residual maturity, the short-term debt (US$ 129.1 billion) accounted for 42.2 per cent of total
external debt at end March 2011 (RBI Press Release, dated 30 June 2011). Short-term debt by residual
maturity comprises all the components of short-term debt with original maturity of up to one year and
amounts falling due under long-term debt including NRI deposits during the one-year reference period.
#: Works out to 6.3 per cent, with the exclusion of India millennium deposits (IMDs) repayments of US$ 7.1
billion and prepayment of US$ 23.5 million.Debt-service ratio is the proportion of gross debt service
payments to external current receipts (net of official transfers).
International Comparison
6.71 A cross-country comparison of external debt
of twenty most indebted developing countries, based
on the data given in the World Bank’s Global
Development Finance 2012 which contains the debt
numbers for the year 2010 and has a time lag of two
years, showed that India was the fifth most indebted
country, after the China, the Russian Federation,
Brazil, and Turkey in 2010 in terms of stock of
external debt. The ratio of India’s external debt stock
to gross national income (GNI) at 16.9 per cent was
fourth lowest, with China having the lowest ratio at
9.3 per cent (Table 6.14.).
6.72 In terms of the cover of external debt provided
by foreign exchange reserves, India’s position was
fifth highest at 103.5 per cent after China, Thailand,
Malaysia, and Russia. A comparison of the share of
short-term debt in total external debt across countries
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reveals that India’s position was eighth lowest, with
Pakistan having the lowest ratio.
CHALLENGES
AND OUTLOOK
6.73 A trade deficit of more than 8 per cent of GDP
and CAD of more than 3 per cent is a sign of growing
imbalance in the country’s balance of payments.
There is scope therefore to discourage unproductive
imports like gold and consumer goods to restore
balance. In this respect, some weakening of the
rupee is a positive development, as it improves trade
balance in the long run by increasing export
competitiveness and lowering imports.
6.74 High trade and current account deficits,
together with high share of volatile FII flows are
making India’s BoP vulnerable to external shocks.
Greater attention therefore has to be given to
improving the composition of capital flows towards
FDI.
Balance of Payments
149
Table 6.14 : International Comparison of Top Twenty Developing Debtor Countries, 2010
Sl
1
Countries
Total
External
Debt Stock
(US$ million)
Total Debt to
GNI
(per cent)
Short-term
to Total
External
Debt
(per cent)
Foreign
Exchange
Reserves to
Total Debt
(per cent)
3
4
5
6
2
1
China
548551
9.3
63.4
531.2
2
Russian Federation
384740
26.9
10.1
124.6
3
Brazil
346978
16.9
18.9
83.2
4
Turkey
293872
40.4
26.6
29.3
5
India
290282
16.9
19.4
103.5
6
Mexico
200081
19.5
19.5
60.3
7
Indonesia
179064
26.1
17.5
53.7
8
Argentina
127849
36.1
27.4
40.8
9
Romania
121505
76.4
20.6
39.5
10
Kazakhstan
118723
94.3
7.6
23.8
11
Ukraine
116808
85.9
22.7
29.6
12
Chile
86349
45.9
30
32.2
13
Malaysia
81497
35.4
43
130.7
14
Philippines
72337
36.2
8.7
86.2
15
Thailand
71263
23.4
54
241.4
16
Colombia
63064
22.8
13
44.5
17
Pakistan
56773
31.3
4
30.4
18
Venezuela
55572
14.3
27.8
53.4
19
Bulgaria
48077
104.8
32
35.8
20
South Africa
45165
12.7
27.2
97
Source : World Bank, Global Development Finance 2012.
Note : Countries are arranged based on the magnitude of debt presented in Column 3 in the Table.
6.75 The rupee has experienced high volatility in
the last few years. Such volatility impairs investor
confidence and has implications for corporate
balance sheets and profitability in case of high
exposure to ECBs when currency is depreciating.
A more aggressive stance to check rupee volatility
is therefore necessary.
http://indiabudget.nic.in
6.76 The size of foreign exchange reserves could
be a constraining factor in checking depreciation of
local currency in the event of external shock and
reversal of capital. It is therefore imperative that
during times of surge in capital flows, when currency
is under pressure to appreciate, measures are taken
to build up reserve levels.